There are many tax benefits that go along with having a child.
It is essential that you know what these benefits are, so you can take advantage of them when tax filing season comes around. After all, you don’t want to miss out on any child tax credits and/or tax deductions that could help reduce your income tax liability.
Claiming Dependent Exemptions
The most common child tax benefit is the dependent exemption. On your tax return, you may claim one exemption for each dependent ― a “dependent” is defined as a qualifying child or relative. The child qualifies if they are your daughter, son, stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of those. The qualifying child must also be under 19 years of age, or 24 years if they are a full-time student. Additionally, the child must have lived with you for more than half of the tax year, and they must not have provided more than half of their own support.
Claiming the Child Tax Credit
If you have children, you may be eligible for the Child Tax Credit which is a credit worth up to $1,000 for each qualifying child. This credit can help reduce or eliminate your overall tax bill and provide some financial relief for parents raising children. The amount of your Child Tax Credit decreases if your adjusted gross income (AGI) exceeds $55,000 (for married couples filing separately), $75,000 (for single filers), or $110,000 (for married couples filing jointly).
Claiming the Child and Dependent Care Expenses Tax Credit
If you paid someone to care for your child, spouse, or other dependent (while you worked or searched for employment), you may qualify for the Child and Dependent Care Expenses Tax Credit. To qualify for this tax credit, the expenses must have been for the care of a child (age 12 or younger) or other qualifying person who is incapable of self-care. The amount of the credit is based on your adjusted gross income (AGI) and may be up to 35% of the money you spent on qualifying expenses. For one child, the maximum tax credit is $3,000 ― for two children, the maximum credit is $6,000.
The more you know about child tax credits and other benefits, the more money you’ll be able to save on your tax return.
While tax laws are constantly changing, keeping yourself informed is a critical part of successful financial planning.